HMRC wins Total People car allowance tribunal

HMRC won an appeal against a first tier tribunal decision taken last year, which had said that the car allowance payments made by training company Total People were exempt from NICs.

Under the AMAP rules in place at the time, Total People could have paid 40ppm (now 45ppm) for business mileage.

However about 160 members of staff were being paid 12-13ppm through expenses plus an additional car allowance, which was paid by way of a fixed monthly amount in addition to their salary. This was meant to cover motoring costs, including business motoring costs and basically cover wear and tear and depreciation etc.

Total People argued that as the payments were made to employees in recognition of the fact that their job required them to use their car for business, they must be payments of Relevant Motoring Expenditure (RME) and therefore exempt from NIC as they were in line with the AMAP rules at the time.

In August 2010, the first tier tribunal judge ruled that car allowance payments were indeed RME and not earnings because they were made for business use of the cars and did not go up in line with normal pay and so could not be called normal pay or normal earnings.

He said the company could therefore go back and claim a refund of £146,000 based on the difference between the rate of mileage paid and the maximum that could have been paid.

However, HMRC said that NI payments were due on the lump sum payments and subsequently appealed to the Tax Upper Tribunal.

The Upper Tribunal judge said that to be a relevant motoring expense, and so benefit from the NIC saving, there had to be a linkage between the number of business miles driven and the amount of the car allowance. He inferred that the car allowance had to vary depending on business mileage and not just grade.

As a result, he overturned the first case and decided the appeal in favour of HMRC. Total People is said to be considering its position with regards to a counter claim.

Tax expert John Messore says that the landmark ruling could cost taxpayers around £1bn.

He added: ‘Whatever the outcome of any subsequent appeal, assuming there is one, it is still possible for companies and taxpayers to restructure today the manner in which the car allowance is paid such that from tomorrow you can start to reap the NIC savings which were at the centre of this case. The solution is really simple and is worth around £1,000 tax and NIC saving per driver, per annum. Furthermore, it is not reliant on the tax case above or the outcome of any future appeal.’